New Oriental Education's massive enrollment and its far-flung structure might lead you to think that management is pursuing the mass-market approach, keeping costs and prices low by drawing big crowds to its classes.

In fact, that was how the country's second-largest private school had been run for years. But management has taken a new course: It's turning to smaller classes and much higher tuition.

"The company's shift from big class to smaller and VIP classes in the previous quarters could drive top-line growth, as these classes have higher ARPU (average revenue per user) at $2,000-$8,000 per course compared to about $1,000 for big class," said a July 19 research note from Beijing-based broker T.H. Capital.

Be aware, New Oriental Education had been accused of wrongdoing. Short-selling specialist Muddy Waters in July 2012 accused it of fraud regarding its franchise business. The stock lost more than half its value in a two-day crash, then recovered.

In its fiscal Q4, ended in May, New Oriental earned 22 cents a share, up 38% and above views. Revenue rose 27%, a slight deceleration vs. Q3 yet still solid.

Consumer Services-Education holds the No. 13 slot out of IBD's 197 industries. While the group includes domestic and foreign companies, the top two names and three of the top five are Chinese.

The other two names are China Distance Education (DL) and TAL Education Group (XRS).

Both show positive charts. China Distance is logging big EPS gains but has a choppy record.

But both are low-priced and thinly traded, with barely any interest shown by big-money funds.

A spate of Chinese education stocks with solid earnings and sales growth are shaping up nicely. But only one can be a serious investment-grade candidate.

New Oriental Education & Technology (EDU) operates 53 schools and 609 learning centers throughout China, reaching some 2.4 million students. The school's main focuses are foreign languages — mostly English, but it also offers German, Japanese, French, Korean and Spanish — and university test-preparation courses.

Combined, you'll see that many New Oriental Education students are preparing to study abroad.

New Oriental Education's massive enrollment and its far-flung structure might lead you to think that management is pursuing the mass-market approach, keeping costs and prices low by drawing big crowds to its classes.

In fact, that was how the country's second-largest private school had been run for years. But management has taken a new course: It's turning to smaller classes and much higher tuition.

"The company's shift from big class to smaller and VIP classes in the previous quarters could drive top-line growth, as these classes have higher ARPU (average revenue per user) at $2,000-$8,000 per course compared to about $1,000 for big class," said a July 19 research note from Beijing-based broker T.H. Capital.

Be aware, New Oriental Education had been accused of wrongdoing. Short-selling specialist Muddy Waters in July 2012 accused it of fraud regarding its franchise business. The stock lost more than half its value in a two-day crash, then recovered.

In its fiscal Q4, ended in May, New Oriental earned 22 cents a share, up 38% and above views. Revenue rose 27%, a slight deceleration vs. Q3 yet still solid.

Consumer Services-Education holds the No. 13 slot out of IBD's 197 industries. While the group includes domestic and foreign companies, the top two names and three of the top five are Chinese.

The other two names are China Distance Education (DL) and TAL Education Group (XRS).

Both show positive charts. China Distance is logging big EPS gains but has a choppy record.

But both are low-priced and thinly traded, with barely any interest shown by big-money funds.

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